Finra Says Wedbush Securities Failed to Detect Manipulative Trades

Edward Wedbush is the founder and president of Wedbush Securities.Credit

A Wall Street regulator accused Wedbush Securities on Monday of failing to adequately supervise its customers as it gave them access to the stock market.

The Financial Industry Regulatory Authority claimed that Wedbush, a brokerage firm based in Los Angeles, lacked sufficient controls to detect potentially manipulative trading during a period of nearly six years. In addition, the regulator, known as Finra, said Wedbush failed to adequately guard against money laundering.

The complaint comes after a similar action in June by the Securities and Exchange Commission, which accused Wedbush and two executives of violating the agency’s market-access rule. Wedbush disputed those charges.

A Wedbush spokesman did not immediately respond to a request for comment on Monday.

Finra, which is financed by fees from the financial industry, claimed that Wedbush failed to maintain proper controls from January 2008 through August 2013, allowing customers to “flood” exchanges with “thousands of potentially manipulative” trades.

The customers, including high-frequency trading firms, were able to place wash trades, in which a trader buys and sells the same security, and so-called spoofing trades, where a trader rapidly places orders before canceling them, creating the illusion of demand, Finra said.

Finra further claimed that Wedbush’s supervisory program was flawed, rewarding compliance officers based on the trading volume of customers. The firm largely relied on its customers to self-report problems, the regulator said.

Wedbush can now file a response to Finra’s accusations and request a hearing before a disciplinary panel.